The dollar near its highest levels in two months amid expectations of interest rate hikes

The dollar index, which measures the performance of the US currency against six major currencies, remained stable at 100.56 points.

Currency markets focused on the recent wave of interest rate hikes and hawkish statements from major central banks, while the US-Israeli conflict with Iran is driving up oil prices and fueling inflation fears.

Investors expect further monetary tightening from central banks, after officials at the Federal Reserve (the US central bank) indicated that further interest rate hikes could be approved if inflation does not decline.

Keiran Williams of Intouch Capital Markets said, "The support that the dollar derives from interest rates appears to be solid, but futures markets expect a pace of monetary tightening that exceeds the Fed's own expectations; therefore, the dollar needs data to confirm this path."

Oil markets remain in focus as Brent crude futures reached $99.22 per barrel amid hopes that diplomatic efforts during the UN General Assembly meetings will pave the way for a settlement of the war in the Middle East.

US President Donald Trump warned on Tuesday that he might destroy Iran if an agreement to end the war could not be reached, but also indicated that an agreement might be reached soon amid diplomatic movement at the United Nations.

The Japanese yen reached 157.55 against the dollar as traders remained cautious of possible intervention by authorities in the foreign exchange market, after markets considered that the Bank of Japan's raising of interest rates last week to the highest level in 31 years was not sufficiently hawkish.